is an

English contract law English contract law is the body of law that regulates legally binding agreements in England and Wales. With its roots in the lex mercatoria and the activism of the judiciary during the Industrial Revolution, it shares a heritage with countries ...

case decided by the

House of Lords The House of Lords is the upper house of the Parliament of the United Kingdom. Like the lower house, the House of Commons of the United Kingdom, House of Commons, it meets in the Palace of Westminster in London, England. One of the oldest ext ...

construction Construction are processes involved in delivering buildings, infrastructure, industrial facilities, and associated activities through to the end of their life. It typically starts with planning, financing, and design that continues until the a ...

of a contract and the doctrine of

fundamental breach Fundamental breach of contract, is a controversial concept within the common law of contract. The doctrine was, in particular, nurtured by Lord Denning, Master of the Rolls from 1962 to 1982, but it did not find favour with the House of Lords. Whe ...

Facts

Photo Productions Ltd engaged

Securicor Securicor plc was one of the United Kingdom's largest security businesses. It was once a constituent of the FTSE 100 Index but merged with Group 4 Falck in 2004. History The Company was founded by Edward Shortt, a former Liberal Cabinet Minis ...

to guard their premises at night. A night-watchman, Mr Musgrove, started a fire in a brazier at Photo Production's factory to keep himself warm. The fire spread accidentally and the Photo Productions plant was totally destroyed by fire, causing £648,000 worth of damage. When Photo Productions sued, Securicor argued that an exemption clause in the contract excused liability. The clause provided: "under no circumstances shall Securicor be responsible for any injurious act or default by any employee… unless such act or default could have been foreseen and avoided by the exercise of due diligence on the part of ecuricor" Photo Productions argued that the clause could not apply under the doctrine of fundamental breach, that the breach of the contract went to the root of the contract, it invalidated the whole agreement and extinguished the exclusion clause.

Judgment

Court of Appeal

Lord Denning MR Alfred Thompson Denning, Baron Denning, (23 January 1899 – 5 March 1999), was an English barrister and judge. He was called to the Bar of England and Wales in 1923 and became a King's Counsel in 1938. Denning became a judge in 1944 when he w ...

held that the doctrine of fundamental breach did apply, and that Securicor was liable. He said if the breach was fundamental then the exclusion clause would be invalid, following his decision in '' Harbutt's "Plasticine" Ltd v Wayne Tank and Pump Co Ltd''. He said the following. 9781 WLR 856, 865. Shaw and Waller LJJ concurred. Securicor appealed.

House of Lords

The

overturned the

Court of Appeal An appellate court, commonly called a court of appeal(s), appeal court, court of second instance or second instance court, is any court of law that is empowered to Hearing (law), hear a Legal case, case upon appeal from a trial court or other ...

and held that Securicor's exclusion clause was effective and exempt it from liability for damage.

Lord Diplock William John Kenneth Diplock, Baron Diplock, (8 December 1907 – 14 October 1985) was a British barrister and judge who served as a lord of appeal in ordinary between 1968 and until his death in 1985. Appointed to the English High Court in ...

held that the clause’s effectiveness was a question of construction of the contract, and that it did cover the damage. He noted ‘the reports are full of cases in which what would appear to be very strained constructions have been placed upon exclusion clauses’ though the need should have gone since the passage of the

Unfair Contract Terms Act 1977 The Unfair Contract Terms Act 1977 (c. 50) is an act of Parliament of the United Kingdom which regulates contracts by restricting the operation and legality of some contract terms. It extends to nearly all forms of contract and one of its most ...

Lord Wilberforce Richard Orme Wilberforce, Baron Wilberforce, (11 March 1907 – 15 February 2003) was a British judge. He was a Lord of Appeal in Ordinary from 1964 to 1982. Early life and career Born in Jalandhar, India, Richard Wilberforce was the son of ...

, writing for the Court, overturned Denning and found that the exclusion clause could be relied upon. Wilberforce explicitly rejected Denning's application of the doctrine of fundamental breach and opted for a "rule of construction" approach. Exemption clauses are to be interpreted the same as any other term regardless of whether a breach has occurred. The scope of the exclusion is determined by examining the construction of the contract. On the facts, Wilberforce found that the exclusion clause precluded all liability even when harm was caused intentionally. He went out of his way to disapprove the doctrine of fundamental breach of contract.

Significance

The case is remembered for these principal reasons: * first, the explicit rejection of the doctrine of fundamental breach under English law (and hence, by extension, for much of the

common law Common law (also known as judicial precedent, judge-made law, or case law) is the body of law primarily developed through judicial decisions rather than statutes. Although common law may incorporate certain statutes, it is largely based on prece ...

world); and * secondly, it is remembered as the high-water mark of the disputes between the Denning-led Court of Appeal and an increasingly unamused House of Lords, who strongly disapproved of Denning's attempts to remould the law in a manner that he perceived to fit the justice of the situation before him. * thirdly, the case is a strong confirmation of the principles of the ''Suisse Atlantique'' case, which may now be considered the final statement of the common law prior to the Unfair Contract Terms Act 1977.

Notes